Bernanke Sticking By Growth & Prices

Fed-Head Ben Bernanke is trying to convey that the Federal Reserve can still take action if needed.  He is trying to convey a message of more unconventional stimulus, an action path if deflation arises, and a path to supporting long-term recovery.

What is interesting is that Bernanke said that the FOMC has not agreed on a trigger for further action.  Can you say a purely reactionary Fed?  Bernanke also promised to do all it can to support economic recovery.  While long-term securities purchases would ease financial conditions, Bernanke notes that there are risks to new long-term purchases and the Fed must weigh the benefits versus the costs of such asset purchases.

Bernanke also believes that there are further tools to support the economy and the Fed could signal to keep Fed Funds low for even longer.  He also sees a small effect from trimming excess bank reserves.

On the inflation front, Bernanke says there is no support in the FOMC for raising the inflation targets and he noted that inflation should remain subdued for some time.  He also sees low risks to a sharp rise or fall in inflation. The recent slowing is being blamed as mainly due to the household sector.

Here is the important factor, and it is up to you if you believe Ben or not.  Bernanke notes that the economy is vulnerable to unexpected developments, but he is maintaining that the U.S. economy will continue to grow at a modest pace in the second half.  He also sees some pickup in growth in 2011 and subsequent years.

Here is the full text of the notes for Bernanke’s speech.

JON C. OGG